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Economists poke holes in Ukur Yatani’s tax argument

By Steve Umidha

Economic experts have critised Cabinet Secretary Ukur Yatani’s final budget under the current administration saying the fiscal plan did little to nothing in addressing a deranged tax system that is currently hurting individuals and small businesses alike.

“The tax measures are the crux of the moment. For one Kenyans do not deserve any excise tax at a time they are suffering. But the introduction of a requirement to deposit of 50 per cent of the disputed tax revenue in a special account at the Central Bank of Kenya is in bad taste,” said Michael Mburugu, partner at PFK Consulting, said while reacting on the budget’s outcome.

Those concerns were also echoed by Francis Kamau, a partner at Ernst Young, saying, “It is big and bad. This will see a lot of people shutting down businesses. As for the other tax measures, the devil is in the details. Let’s wait and see what happens.”

“In the budget speech, the CS indicated that the Government would be allocating funds to inter alia the Kazi main programme, providing fertilizer subsidies to small scale tea farmers and also investing in improving health and education,” said Grace Muchiri is a senior tax consultant with Ernst & Young.

Whereas these are welcome to Wanjiku, it is notable that the budget speech did not encompass measures that would have a direct and immediate impact on lessening the current economic burden.

In order to address Wanjiku concerns, subsidies on basic food commodities such as flour and cooking oil would have gone a long way in relieving the current burden. Such proposals were missing in the budget statement.

Further, the targeted increase in tax revenue collection to Sh50.4 billion will have a ripple effect on the prices of commodities and the cost of living, leaving Wanjiku in an even worse economic position, she noted.

The process is guided by the budget calendar which stipulates timelines for a number of key activities to be undertaken in order to finalize the Budget and submit it for approval by 30th April of each financial Year.

Instead, a chunk of the allocation was absorbed on roads and infrastructure projects with the ongoing Big 4 projects namely; housing, manufacturing, food security and the universal healthcare allocated Sh146Billion in the next budget.

Education, Infrastructure, Security and Health sectors topped the treasury’s priority list this financial year accounting for over one third of the total Sh3.31 trillion budget read by the former Labour Minister appointed for the role in 2019 – initially in an acting capacity before being confirmed in January 2020.

While making his presentation before the two houses – National Assembly and the Senate, Treasury and Planning CS Yatani insisted the State had maintained its development and recurrent expenditure targets amid a tough economic environment.

The 53 –year old targets to raise an astounding Sh2.14 trillion in taxes and turn to domestic and external lenders to plug the deficit by borrowing Sh846.1 billion.

Education and security sectors massively benefitted from Yatani’s last budget in office, with Professor George Magoha’s led team in the schooling segment taking home Sh544.4Billion.  Security and defense units on the other hand, was allotted Sh317.8 Billion to support operations of the National Police Service, Defence and the National Intelligence Service.

“To further improve education outcomes, I propose a total of Sh 544.4 billion to support programs in the education sector,” stated Yatani in his speech.

Out of the proposed allocation in the education sector, Sh 12.0 billion will cater for free primary education, while Sh2.5 billion will be spent to recruit new of teachers drawn from the Teachers Service Commission (TSC) and Sh 64.4 billion for free day secondary education including insurance under NHIF for secondary school students.

A further Sh 5 billion was allocated for examinations fee waiver for grade six, class eight and form four candidates with Sh 1.96 billion set aside for the school feeding programme.

KRA rebranding

The CS further proposed that Kenya Revenue Authority be renamed Kenya Revenue service in a move aimed at transforming its image.

While issuing the 2022/23 budget, Yattani said that the rebranding is aimed at rebranding and transforming its public image and subsequently enhancing tax compliance.

Under its new name, Yattani said the taxman will put more focus on improving customer relations and maintaining a clear focus on taxpayers’ needs.

“The change of the name is intended to rebrand the Authority and transform its public image thus enhancing tax compliance through improved public relations and maintaining a clear focus on taxpayers’ needs,” he said

“I have also proposed consequential amendments to other statutes which have reference to the name ‘Kenya Revenue Authority’ and align them to the proposed new name,” he added.

Over the past 17 years, the Kenya Revenue Authority (KRA) has sought to improve its relations with the taxpayers through interactive activities across the country during its annual Taxpayer’s Month in October.

Now the board chaired by the former head of civil service Francis Muthaura is planning a major rebrand that could see the taxman renamed the Kenya Revenue Service (KRS).

“Our goal is to perfect service delivery to the taxpayers and build relations founded on trust in order to optimise revenue collection without necessarily recommending more taxes. Our moment of joy is to perfect service delivery to the extent that we are able to collect adequate revenue with the tax policies already in place.

The other focus point is to ensure that we have a tax regime that is good for the economy. We have geared up towards expansion of the tax base as a tool for establishing a stable equilibrium in the taxation equation.

In other words, we are looking at a tax regime that is conducive for business and economic transformation while at the same time enabling us raise adequate revenue to finance our country’s development agenda,” said KRA’s Board Chairman Francis Muthaura in a previous interview with a local daily newspaper.

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